U.S. Treasury Yields Hit 16-Year High, Sending Global Markets into Panic
Global financial markets were sent into a state of panic yesterday as U.S. Treasury yields reached a peak not seen since the early tremors of the 2007-2008 financial crisis. This surge in yields, combined with fears of rates remaining elevated for an extended period, led to a bearish steepening of the U.S. yield curve and caused jitters among risk assets worldwide.
Both Asian and European stock benchmarks experienced declines, with U.S. equities expected to follow suit. Crude oil also retreated from its 10-month highs due to remarks made by Federal Reserve officials. The officials’ comments added to concerns about a U.S. government shutdown and the significant pipeline of U.S. treasury auctions scheduled for this week.
The yield on 10-year Treasury notes rose as high as 4.566 percent, a level not reached since 2002. This increase, along with the anticipation of a U.S. government shutdown, contributed to the skittish mood in the markets. Similarly, Eurozone bond yields remained near multi-year highs as the prevailing narrative of central banks keeping rates higher for longer held sway.
Reflecting the strong performance of the U.S. economy, the U.S. dollar index rose 0.2 percent to 106.2, its highest level since November 2022. The dollar’s outperformance against major currencies, such as the euro and yen, is attributed to investors’ belief in a soft landing for the U.S. economy, compared to stagnant growth in the eurozone and Britain.
The negative sentiment spread across global markets, with Tokyo’s Nikkei losing 0.93 percent, Hong Kong’s Hang Seng slipping 0.98 percent, and mainland Chinese blue chips declining 0.4 percent. European shares also experienced a decline, with the benchmark STOXX index of 600 European shares sliding 0.4 percent, in line with earlier falls in the Asia-Pacific region.
Traders have adjusted their expectations of future Federal Reserve actions, now considering a quarter-point hike by January a coin toss. Additionally, the likely start of rate cuts has been pushed back to the summer. This nervousness surrounding U.S. government debt is further intensified by the Republican-controlled House of Representatives’ efforts to advance steep spending cuts, which could potentially trigger a partial government shutdown if not resolved by next Sunday.
The European Central Bank and the Bank of England have also expressed their intentions to raise rates for a longer period during recent policy meetings. This commitment, coupled with the relative outperformance of the U.S. economy, has further boosted the U.S. dollar against other currencies. The euro weakened 0.08 percent to $1.0584, nearing its overnight low of $1.0575, last seen in mid-March. Similarly, sterling slipped 0.23 percent to $1.2185, approaching its six-month low from Monday.
The dollar also remained near an 11-month peak against the yen, raising concerns of intervention by Japanese authorities. Gold prices continued their decline, falling slightly to $1,913.31, down from above $1,947 in the past week.
Crude oil prices were also affected by the fear that major central banks’ decision to keep interest rates higher for longer could crimp fuel demand, despite expected supply tightness. Brent crude futures were down 97 cents at $92.32 a barrel, while U.S. West Texas Intermediate crude futures traded 92 cents lower at $89.76.
The current state of the global financial markets has left investors on edge, with uncertainty surrounding future interest rate movements and concerns about a potential U.S. government shutdown. As the situation continues to unfold, analysts and traders are closely monitoring these developments to assess the potential impact on various asset classes.
More detail via www.theepochtimes.com here… ( Image via www.theepochtimes.com )